Sydney, 22 May 2013-Western Sydney is emerging as the Harbour City’s industrial powerhouse, as developers take advantage of the region’s low rents, supporting infrastructure and availability of land.
CBRE’sQ1, 2013 Australia Industrial MarketView report found that while supply levels for new stock has been constrained in recent years due to restricted lending, increased demand for industrial assets will underpin a flurry of new developments this year.
Over the course of 2013, 823,443sqm of industrial space is expected to be completed across Sydney, with the outer west accounting for more than half of all new developments.
CBRE Senior Research Manager of Industrial Markets Luke Dixon said developers were taking advantage of favourable conditions offered in the fringe areas.
“Sydney continues to face supply challenges within the metropolitan area, forcing developers to look at the more attractive markets in the west,” Mr Dixon said.
“As well as offering industrial development opportunities, Western Sydney is supported by good connections to major arterial roads.”
The report shows that construction activity is tracking in line with demand levels, with 141,514sqm of industrial space absorbed during the first three months of 2013. The manufacturing industry was one of the most active areas of the market, with large imports of manufactured articles placing more demand on the sector.
Despite a flat result for prime net face rentals during Q1, warehouse and distribution net face rentals recorded year-on-year growth due to a shortfall of - and increased demand for - quality well placed stock. A grade net face indicative rentals for warehouse and distribution centres experienced 2.1% and 1.4% growth respectively for the year to March.
The outer central west enjoyed the highest rental growth over the quarter, with a 9% jump, followed by the south with 3%, the central west with 2% and the outer, north and south west with 1% rental rises.
The outer south, north shore, north shore west and upper north remained unchanged over the quarter, while Macquarie Park was the only area to experience a decrease, with a 0.1% fall in rents.
Incentive levels also fell flat over the quarter, with A grade incentives hovering at 11% for warehouse and distribution assets, while B grade incentives remained at 11% and 12% for warehouse and distribution space.
Land values stabilised over the three-month period, with the average cost of a 0.25ha lot commanding $540sqm and larger 1.6ha lots sitting at $428sqm. Grade A capital values remained steady over the quarter, while grade B warehouses increased 4.4% over the period and 5.5% over the 12 months to March to $1,075sqm.
CBRE Senior Director of NSW Industrial Jason Edge said despite this, investor confidence in Sydney’s industrial market remains stable.
“Sydney’s high yield performance continues to attract the interest of investors, particularly those looking to develop quality assets in the rapidly growing western region,” Mr Edge said.
Mr Edge said while there was a certain level of optimism in the market and tenant demand remains steady, occupiers were carefully assessing properties before committing.
“There is more caution being executed in the market, with shorter terms and sub-lease leases becoming popular as tenants take a ‘wait and see’ approach,” Mr Edge explained.
Yields remained steady over the quarter, with average warehouse grade A yields currently ranging between 8.0% and 10.50%, while B grade assets range between 8.70% and 11.25% respectively. Strata unit yields in all three northern sub-markets have remained firm since 2010, with A grade stock currently sitting at between nine per cent and 10% and B grade ranging between 9.50% and 10.50%.
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